Once you decide to start a business, there are several factors to consider: a business plan, location, marketing, and money (here is my article to help with your business planning). Without an influx of cash, starting or maintaining a successful business is highly unlikely. There are various means to obtain funds, but one the most popular ways is to obtain business financing from a bank. Before you rush to your local branch to fill out a loan application, it is important to know what questions banks will ask when deciding to approve a loan.
What do you have?
Banks that provide loans need to feel confident that those loans will be repaid. If businesses do not have good credit, collateral, or cash flow, banks are less likely to approve loans. This is why it is critical to proactively manage your accounts receivables. I have some tips here. Some banks will also review the credit history and management capabilities of business owners. Credit history shows how individuals and businesses pay on accounts such as revolving credit accounts (credit cards), lease accounts, installment loans and other types of loans. Collateral is a personal or business asset used to secure a loan. It can include goods and products (inventory), commercial property and business equipment. Cash flow refers amount of money transferred in and out of a business during the course of business operations. A strong cash flow is a good indicator of a business’s financial health.
What do you offer?
Banks will also consider the types of goods or services businesses offer when determining if they will provide loans. They will research market data or review data from business plans. The United States Bureau of Labor Statistics and other agencies provide information on various business sectors. Banks will view signs of growth in certain sectors positively. Consequently, stagnant sectors or those showing reductions in growth will not impress banks. Established businesses may be able to demonstrate their viability with detailed financial records showing a solid record of sales, orders, or accounts receivables.
What do you want?
Before approving loans, banks want to know why businesses want financing and what they plan to do with loan proceeds. Some businesses want money for working capital. Others want to purchase equipment to increase production. Whether used to purchase inventory or for land acquisition, the money requested should relate to maximizing profits and growing a business, which, in turn, increases the business’s ability to repay the loan.
If you can answer these questions to a bank’s satisfaction, you are well on your way to getting the financing you need.
The Law Offices of Terry L. Gilbeau provides personalized counsel to clients in a variety of business and personal matters, including creditors’ rights, debt collection, products liability and international transaction issues. His office is located in Rocklin, CA, just outside of Sacramento, CA, near Roseville, Lincoln, Auburn, in Placer County and can be reached at (916-626-5539) or email Terry at email@example.com. Click here for the firm website http://www.gilbeaulaw.com/